EU, China ease frictions on currency, trade

European officials said China could be moving towards a stronger exchange rate for the yuan that Europe has long advocated. Chinese Premier Wen Jiabao said his country would let market forces play a greater role in setting its value. „We heard this idea that going in the direction that we are suggesting would perhaps be the attitude of the Chinese authorities, but I wouldn’t say anything more than that,” ECB president Jean-Claude Trichet said. EU officials are dismayed by the yuan’s steady slide against the euro, which they say is exacerbating global imbalances and fuelling protectionism in Europe. But Wen offered an olive branch. „China will continue to perfect the renminbi exchange rate regime in a gradual, proactive and manageable manner, give a further role to the market in determining the exchange rate, and will bring flexibility to the renminbi with a view to enabling capital account convertibility,” he told an EU-China forum. The premier also said that China and the EU had agreed to cooperate to narrow their gaping trade imbalance.

EU officials have warned China that the bloc’s swelling bilateral trade deficit, which Brussels expects to rise nearly 30% this year to €170 billion ($285 billion) is stoking protectionist pressures. „We have a consensus and desire to work to resolve this issue,” Wen told a news conference at the end of a summit that saw a host of EU leaders descend on Beijing.

Sore spots
They touched on a number of sore spots, including economic issues, what the European Union sees as China’s lax controls over fake goods, and climate change. On Wednesday, the European Investment Bank said it would provide a €500 million loan to China to supports its efforts to combat climate change. The European Union has been taking a tougher line on currency and trade issues with China after coming to a judgment that quiet diplomacy was not yielding quick enough results. But they ended the meetings with agreements to set up a series of mechanisms that broaden opportunities to work out the issues between them. The European Central Bank and the People’s Bank of China would set up a working group at once to examine currency issues, which have become a major source of friction, Trichet said.

Jose Socrates, prime minister of Portugal which holds the rotating EU presidency, said Beijing and Brussels had also agreed to set up a high-level group to discuss how to reduce the deficit. The moves show signs of conciliation after sharp words from Europe, as well as from visiting French President Nicolas Sarkozy, over the pace, if not the direction, of China’s economic reforms. EU Trade Commissioner Peter Mandelson also raised hackles by criticizing Beijing for failing to act quickly enough to address problems of food and product safety and piracy of intellectual property. Mandelson urged China to allow more market access in the services and banking sectors. But Wen said China’s policies to encourage consumption would benefit European companies. „In the coming decade, European business will find more opportunities in the Chinese market,” he said. (businessspectator)